The review will investigate compliance with the Consumer Credit Act and the OFT’s guidance on irresponsible lending.

There are a number of issues of concern that the OFT will focus on during the review, including:

• Giving loans without first checking adequately that the borrower can afford to repay them.
• Inappropriately targeting particular groups of people with clearly unsuitable or unaffordable credit.
• Rolling over loans so that charges escalate and the loans become unaffordable.
• Not treating borrowers that get into financial difficulties fairly.

David Fisher, OFT Director of Consumer Credit, said:

‘We are concerned that some payday lenders are taking advantage of people in financial difficulty, in breach of the Consumer Credit Act and not meeting the standards set out in our guidance on irresponsible lending. This is unacceptable. We will work with the trade bodies to drive up standards but will also not hesitate to take enforcement action, including revoking firms’ licences to operate where necessary

• The Consumer Credit Act 1974 (as amended) requires businesses offering credit, lending money or involved in activities relating to credit or hire to be licensed by the OFT. Consequently,when you applied for a licence you would have certified that certain procedures and processes are in place to satisfy the granting of the licence.
• The OFT’s irresponsible lending guidance was published in March 2010 (updated February 2011). The guidance outlines the standards expected of consumer credit businesses including payday lending companies and states that they should make an assessment of affordability before granting loans.
• The guidance also highlights that creditors should treat borrowers fairly and with forbearance if they experience difficulties repaying their loans. Similarly, the guidance sets out examples of irresponsible lending practices which, if engaged in, would call into consideration the fitness of the business concerned to hold a CCL.
• The review will also cover compliance with other OFT guidance and legal obligations where relevant.
• The OFT considers a ‘payday loan’ to be a short-term, high interest, unsecured loan, typically repaid by the time/when the borrower receives his next regular income payment (normally on or around/within 30 days of having been granted the loan). References to a ‘payday lender’ are references to businesses which offer these types of loans.
• The OFT published its High Cost Credit Review in June 2010 and published its Debt Management Review in September 2010.

24th February 2012